Review
Updated
Fact Checked
Ashley Maready
Most of us wouldn't feel very safe keeping all of our hard-earned cash under our pillows at night, so we open bank accounts and park our cash there instead. But picking the right bank or credit union account can be challenging, especially for those who are new to banking.
And what is a bank, even? What is a credit union? How do you compare banks, or know what savings account is the best savings account?
This guide can help you understand banks and credit unions, types of bank accounts, what to look for in a bank account, how to compare banks, and how to open a bank account and fund your account.
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Bank vs. credit union vs. online bank
When it comes to choosing a financial institution, the three most common options are banks, credit unions, and online banks. They each offer unique benefits that cater to different needs. Here are the main differences.
What is a bank?
Definition: A bank is an institution where anyone (approved by the bank) can deposit savings and take out loans. Banks are often seen as a convenient and secure way to store money, and some account types also earn interest. Most banks have both online and in-person services.
Examples of banks:
Bank pros:
- FDIC insurance
- In-person customer service
- Large network of ATM locations and branches
- Online tools and apps
- Many options for accounts and financial services
Bank cons:
- Fees are often higher than other financial institutions
- Loans often have higher interest rates
- Lack of flexibility and can limit customers' access to money
- Deposit accounts (like savings) don't usually earn much interest
Banks are for-profit organizations. At a bank, you can open checking and savings accounts, loans, credit cards, or other products. Almost anyone can join a bank.
However, banks often charge higher fees than credit unions. They also usually offer lower interest rates on checking and savings accounts.
Learn more about banks
Here are a few lists we've made to help you compare banks -- whether you're looking for account bonuses, joint accounts, or something else:
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What is an online bank?
Definition: An online bank is a financial institution that takes deposits and makes loans online, without any physical branches.
Examples of online banks:
Online bank pros:
- FDIC insurance
- Convenience and account access at any time and anywhere.
- Fees are lower
- Loans have lower interest rates
- Deposit accounts (like savings) earn more interest
Online bank cons:
- No in-person customer service
- Taking out cash can be a hassle
- Security concerns
Online banking has become increasingly popular in recent years, allowing customers to manage their finances from the comfort of their own home. Online banks are for-profit. They're similar to other banks, except they don't have any in-person locations. If you need help, you must contact the online bank by phone or email.
People generally like these banks because they offer high interest rates on bank accounts and low interest rates on loans. Another advantage of online banking is the convenience it provides. Customers can access their account at any time, anywhere, and complete transactions quickly and easily.
The biggest drawback of online banks is that accessing your funds can be more difficult. Some banks have ATM networks where you can withdraw cash for free. However, if you don't live near a connected ATM, it can be a hassle to withdraw cash from an online bank account.
It's normal to have a lot of questions about opening an online bank account. Online banks are new, and a lot of people have never opened an account with an online bank before. Here are some resources we've created to help you decide if an online bank account is for you:
We've also reviewed many popular online checking accounts, and created a list to help you compare. You can find that list here: Best online checking accounts.
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What is a credit union?
Definition: A credit union is a nonprofit financial institution that exists to serve its members. Unlike banks, credit unions are owned and operated by their members, with a focus on providing affordable financial products and services.
Credit union pros:
- NCUA insurance
- In-person customer service
- Fees are usually lower than other financial institutions
- Loans generally have lower interest rates
- Deposit accounts (like savings) usually earn more interest
- Sometimes more lenient towards borrowers with bad credit
Credit union cons:
- Generally fewer online and mobile tools
- Membership may be limited to those who qualify
- Fewer options for accounts
- Networks of ATMs and physical branches can be limited
Credit unions are not-for-profit. The biggest advantage of using a credit union is that they typically offer better interest rates on loans, credit cards, savings accounts, and CDs, compared to traditional banks. However, they also tend to have fewer product offerings. Plus, not everyone can become a member of a credit union.
Each credit union defines its membership differently. To become a member of a credit union, you might need to pay a small membership fee or be part of an organization (like the military).
If you're comparing banks vs. credit unions, an important first question is "Can I become a member of the credit union I'm interested in joining?"
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What's the best bank?
That depends on who you are and what you need!
For a quick look at the banks we love, click a button below. You'll be taken to our list of up-to-date recommendations:
When you're deciding on a bank, start by deciding whether you want to open an account at a bank or a credit union. Then, ask the following questions. The more times you answer "Yes" to these questions about a bank you like, the more likely that bank fits your lifestyle:
- Does it have FDIC or NCUA insurance?
This keeps your money safe if the bank or credit union fails. - Is it convenient for you?
This can mean a good location or a even good mobile app. - Does it have good customer service?
Look at online reviews, as well as hours for the bank's call center and online chat services. - Does it offer other financial products you need, like mortgages or small business accounts?
Answering these questions should help you find the right bank for you.
If you're curious about any of the questions above, keep reading --we'll dig into the details of each one by one below:
FDIC insurance or NCUA insurance
What is FDIC insurance, you ask? It's a guarantee that the bank will have some or all of your money available for you to withdraw (within account requirements and limitations) -- even if the bank itself fails.
You'll probably never need FDIC or NCUA insurance, but if you do, you'll really need it. Make sure that your bank or credit union is FDIC insured before you sign up. Most state their member ID number on the footer of their website. You can also contact the bank or credit union if you're unsure, but most should have the applicable type of insurance.
Availability and convenience
To find the right financial institution for you, check where and how you can access your account. If you prefer banking in person, check whether the bank you're interested in has branches near you (or nationwide, if that fits your lifestyle).
Most banks offer some online functionality these days, and some banks are fully online. But it's worth checking out a bank's mobile banking app (if it has one) to see how much of your banking you can do from your phone or other device. This could be especially helpful if you're opening a joint account with someone who doesn't live near you.
Customer service
Look into how you can contact the bank or credit union if you have questions or problems with your account. Check into its customer service hours as well. Some national banks have 24/7 customer support, while smaller regional banks and credit unions may only operate during normal business hours.
Mortgages, loans, and other banking products
You may only be looking for a checking or savings account now, but in the future you might need to buy a home or start a business and then you'll need a mortgage or a business loan. Anticipating your future needs and choosing a bank or credit union that can accommodate them can prevent you from having to jump ship as your financial needs change.
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What's the best bank account?
Once you've narrowed your list down to a couple banks, take a look at their accounts and ask the following questions.
- Would it be free for you to use ATMs?
Look for banks with a large ATM network, or accounts that offer ATM fee reimbursement for out-of-network ATMs. - Do any accounts have a high interest rate (APY)?
This is how much money you'll earn in interest. - Do the accounts have low fees?
To see all the fees associated with an account, you can ask for something called a "fee schedule." - Do the accounts have minimum balances you can maintain?
- Do any of the accounts offer an attractive sign-up bonus?
Need a place to start? Here's a few places you can find our favorite bank accounts:
Keep reading for more information on how to compare different accounts:
ATM network or generous ATM fee reimbursement program
You want your bank to be as accessible as possible. If you often pay with cash, you will need access to in-network ATMs to avoid any ATM fees. If you only have access to out-of-network ATMs, look for banks that offer generous ATM fee reimbursements. Most banks boast how many ATMs you can use for free on their websites, and they'll also post what fees, if any, you might incur when using an ATM.
Bank interest rates
Look at the APYs your bank or credit union offers on the type of account you're interested in, and compare this to some of its competitors.
Note that some financial institutions employ a tiered system where you earn a higher interest rate for having a larger balance. If this is the case, figure out what kind of interest rate you can realistically expect based on how much you plan to keep in the account.
You should also look into how its interest rates on loans stack up against competitors if you think you might ever take out a loan from the bank or credit union.
Fees
Check the fee schedule for the type of account you plan to open. Contact the bank or credit union if you are unable to find this information on its website or if you have any questions about its fees. Read through it all carefully and make sure you understand what you're getting into. Common fees to watch for include: monthly maintenance fees, overdraft fees, out-of-network ATM fees, insufficient funds fees, and more.
Minimum balance requirement
Many banks and credit unions require a minimum initial deposit to open your account. They may have ongoing minimum balance requirements you must meet to avoid fees. Like almost everything on this list, requirements will vary by institution and account type. Make sure you're comfortable with these before you sign up or you could cost yourself money.
Account sign-up bonuses
An increasing number of banks and credit unions are offering special sign-up bonuses like credit cards do to entice new customers. This could be the deciding factor between two similar bank accounts, but don't base your decision on a sign-up bonus alone.
If you're interested in accounts with bonuses, head over to our Best Bank Bonuses page.
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Types of bank accounts
There are four main types of bank accounts: checking accounts, savings accounts, CDs, and MMAs. We'll go over each one at a time below. You can also click the buttons below to skip to that account type.
Checking accounts
Best for: People who want a safe place to keep the money they use to pay bills.
Not for: People who want to earn a lot of interest on their money.
You should open a checking account for money you plan to use for everyday spending. You can withdraw money as often as you like, as long as you don't withdraw more money than you have. (There are restrictions on withdraws from savings accounts, CDs, and money market accounts.)
If you're struggling to find a checking account you like, you're not alone. There are so many options -- it can be hard to narrow down to just one! On top of making sure any account you choose is FDIC-insured, we recommend asking yourself these three questions when comparing checking accounts:
- What are the account fees? (Fewer is better)
- Is there a minimum deposit or balance?
- Does the account earn interest?
These three questions can help you get a better idea of how the checking account will fit into your everyday life.
Our recommendations: Checking accounts we love
We spent some time (okay, a lot of time) looking at what's on the market for checking accounts. Here are three accounts that stand out from the pack. For our full list of up-to-date recommendations, head to our list: Best Checking Accounts.
Show Best Offers Available in
Rates as
of Sep 18, 2023
| Offer |
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|---|---|---|---|
| Account | |||
| Rating |
Rating image, 4.75 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.75/5 |
Rating image, 4.25 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.25/5 |
Rating image, 4.00 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.00/5 |
| APY | up to 4.50% Rate info SoFi members with direct deposit can earn up to 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. You can earn the maximum APY either by making direct deposits into checking or savings, or by depositing $5,000 or more every 30 days. Learn more at https://support.sofi.com/hc/en-us/articles/4423866727949. | up to 3.30% Rate info To earn the full APY, account holders must do all of the following: Receive monthly direct deposits totaling more than $1,500; make 10 transactions a month with your Axos debit card, or sign up for Axos's Personal Finance Manager; maintain an average daily balance of $2,500 per month in an Axos Invest Self Directed Trading Account; and use your Rewards Checking account to make your full monthly Axos Bank consumer mortgage, personal, or auto loan payment. | up to 1.10% |
| Min. to earn APY | $1 | Monthly direct deposits totaling at least $1,500 | $1 |
| Next Steps |
* Axos Bank Rewards Checking
To be eligible to earn all or a portion of the cash incentive as part of the "SUNNYBONUS" $300 promotion, an Axos Bank Rewards Checking account that includes the promotional code "SUNNYBONUS" must be opened between August 1, 2023, at 12:00 am PST and December 31, 2023, at 11:59 pm PST. Axos Bank reserves the right to limit each primary account holder to one (1) checking account promotional offer per year, and customers who have held primary ownership of an Axos Bank or Axos Bank for Nationwide checking account at any time in the past 12 months may be disqualified from the "SUNNYBONUS" offer. Promotional terms and conditions are subject to change or removal without notice. Bonus cash may be taxable and reported on IRS Form 1099-MISC. Consult your tax advisor. After meeting the initial requirements mentioned above, the amount of cash bonus earned will depend on meeting the additional requirements outlined below:
To earn up to a $300 bonus, you must be approved for your new Axos Bank Rewards Checking account, fund it within 30 days of account opening, and have qualifying direct deposits that total at least $5,000.00 each calendar month during the first seven (7) calendar months your account is open as well as maintain a minimum average daily balance of $7,000. The minimum balance must be achieved and maintained through the first seven (7) calendar months your account is open including the month in which your account was opened. A cash bonus of up to $300 can be earned in the following manner during the first seven (7) statement cycles. A statement cycle is a calendar month consisting of the days your account was open during that month. A maximum of six (6) payouts of $50 for each calendar month that the Rewards Checking account is receiving the direct deposit and maintain a minimum average daily balance of $7,000 can be earned during the seven (7) statement cycles, and the bonus will be deposited into your Axos Bank Rewards Checking account within 10 business days following the end of the statement cycle in which the direct deposit requirement was met. Your Axos Bank Rewards Checking account must be open and in good standing at the time the bonus is paid to be eligible to receive the bonus, and your Axos Bank Rewards Checking account must remain open for 210 days, or an early closure fee of up to $300 may apply, equal to the amount of the total bonus earned up to $300.
A direct deposit is an electronic deposit of your paycheck or government benefits, such as Social Security, Disability etc. Other deposits (i.e., online banking transfers, ATM and mobile check deposits, etc.) or person-to-person payments are not considered a direct deposit.
A statement cycle is defined as a period of time that starts on the first day of the calendar month and ends on the last day of the calendar month.
* Quontic High Interest Checking
10 debit card point of sale transactions of $10 or more per statement cycle required to earn the maximum APY. If the qualifying activity requirement is not fulfilled, the interest rate paid on the entire balance will be 0.01% APY.
More about checking accounts
Checking accounts are ideal for paying bills and you can easily turn your checking account funds back into cash as needed with the included debit card. You can also purchase checks for your checking account if you prefer to pay this way.
This account differs from other banking accounts in that it generally has lower interest rates, but provides the account holder with more flexibility in terms of accessing funds.
While some online checking accounts offer interest, these accounts are rare, and even the best interest-bearing checking accounts usually have annual percentage yields (APYs) lower than most savings account APYs. If you're hoping to grow your money, you're better off using one of the other bank accounts listed below.
Some checking accounts charge a monthly maintenance fee, but they might waive this if you meet certain requirements, like having a certain number of deposits per month or maintaining a minimum balance. Other fees you might run into with checking accounts are ATM fees for using ATMs outside of your bank or credit union's network or overdraft fees if you try to withdraw more money from your checking account than it contains.
Show More [ + ]
Savings accounts
Best for: Those who want a low-risk way to grow their money.
Not for: Those who plan to withdraw money frequently from their account.
A savings account is a low-risk account where you can earn interest on your money. It's a great place to save for an emergency fund, a vacation, or a down payment on a home. However, you can only withdraw money from a savings account account a handful of times every month -- so it's not great for paying bills. Checking accounts are better for bills.
Looking for a savings account can be time-consuming and overwhelming. To narrow down your options, ask these three key questions when searching for the best savings account:
- What's the interest rate? (Higher is better)
- Is there a minimum deposit or balance?
- Does the account offer a sign-up bonus?
Also make sure any savings account you're considering is FDIC-insured (that makes sure your money is protected in case of bank failure, up to $250,000).
Our recommendations: Savings accounts we love
We're a little obsessed with finance (okay, a lot obsessed). Great savings accounts excite us -- for real, you should hear us at a family reunion. Here are three savings accounts that have the sparkle we look for. For our full list of up-to-date recommendations, head to our list: Best Savings Accounts.
Show Best Offers Available in
Rates as
of Sep 18, 2023
| Offer |
|
|
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|---|---|---|---|
| Account | |||
| Rating |
Rating image, 4.75 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.75/5 |
Rating image, 4.00 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.00/5 |
Rating image, 4.75 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.75/5 |
| APY | up to 4.50% Rate info SoFi members with direct deposit can earn up to 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. You can earn the maximum APY either by making direct deposits into checking or savings, or by depositing $5,000 or more every 30 days. Learn more at https://support.sofi.com/hc/en-us/articles/4423866727949. | 4.25% Rate info 4.25% as of September 25, 2023 | 4.30% |
| Min. to earn APY | $1 | $1 | $0 |
| Next Steps |
* Discover Online Savings
Bonus offer details from Discover: "To get your $150 or $200 Bonus: What to do: Apply for your first Discover Online Savings Account, online, in the Discover App or by phone. Enter Offer Code TMF923 when applying. Deposit into your account a total of at least $15,000 to earn a $150 Bonus or deposit a total of at least $25,000 to earn a $200 Bonus. Deposit must be posted to account within 30 days of account open date. Maximum bonus eligibility is $200.
What to know: Offer not valid for existing or prior Discover savings customers or existing or prior customers with savings accounts that are co-branded, or affinity accounts provided by Discover. Eligibility is based on primary account owner. Account must be open when bonus is credited. Bonus will be credited to the account within 60 days of the account qualifying for the bonus. Bonus is interest and subject to reporting on Form 1099-INT. Offer ends 12/14/2023, 11:59 PM ET. Offer may be modified or withdrawn without notice."
More about savings accounts
Compared to other investment options, savings accounts are considered to be low-risk because they are generally insured by the government up to a certain amount. There are different types of savings accounts available, each with their own features and benefits.
The average savings account APY is 0.42%, but some high-yield savings accounts offer APYs in excess of 5%. A higher APY will help your savings grow more quickly.
While you can technically keep the money in your savings account indefinitely, savings accounts are best for money you plan to use in the next three to five years. Invest longer-term savings if you hope to beat inflation and actually increase your wealth over time.
A savings account isn't the best choice if you expect to withdraw cash from your accounts often. That's because it's subject to Regulation D. This is a federal law that restricts savings account holders to six "convenient" withdrawals or transfers per month.
READ MORE: What Is Regulation D?
Convenient transactions include transfers made online or over the phone, bill payments or other recurring transfers, and overdraft transfers. If you have more than six of these per month, your bank or credit union will charge you extra fees.
You can still make additional "inconvenient" withdrawals, though, including visiting a branch location if your financial institution has them or requesting a mailed check from your bank.
This is partly because banks and credit unions take the money you place into your savings account and use it to finance loans for other customers. Then, they give you a portion of the interest they earn from the borrower.
Savings accounts don't usually include checks or debit cards for accessing funds. You may need to transfer funds to a checking account before you can withdraw the money via check or debit card payment. You also need to be mindful of the account's minimum balance requirement. If it has one and you let your balance fall below that level, you might incur additional fees.
Below are some examples of savings accounts. For our most up-to-date savings account recommendations, go here: Best Savings Accounts
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Money market accounts (MMAs)
Best for: Those who want to earn a high interest rate without sacrificing easy access to their money.
Not for: Those with a small amount of savings who cannot meet the minimum balance requirements.
If checking and savings accounts had a baby, that baby would be a money market account (MMA). MMAs often come with checks or debit cards, like a checking account. They also have high interest rates -- like savings accounts. However, they usually have high minimum balances. You'll have to be able to keep a hefty chunk of cash in the bank at all times if you want to have an MMA.
There's lots of MMAs on the market. If you're looking for the best money market account for the first time, it can be hard to know what to compare. Here are three things we recommend comparing between money market accounts when looking for one that fits you:
- What's the interest rate? (Higher is better)
- What's the minimum balance?
- What are the fees on the account?
Also make sure you look for an account that's FDIC-insured -- that makes sure your money is protected, up to $250,000.
Our recommendations: Money market accounts we love
We spend our days looking at bank accounts (and their close relatives -- credit cards, mortgages, and others). Here are a few money market accounts we really like. For the full up-to-date list of our recommendations, head to our main page: Best Money Market Accounts.
Show Best Offers Available in
Rates as
of Sep 18, 2023
| Offer |
|
|
|
|---|---|---|---|
| Account | |||
| Rating |
Rating image, 5.00 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor5.00/5 |
Rating image, 4.75 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.75/5 |
Rating image, 4.50 out of 5 stars.
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor4.50/5 |
| APY | 4.40% | 5.02% | 5.00% |
| Min. to earn APY | $1 | $0 | $100 |
| Next Steps |
|
|
More about money market accounts
MMA APYs are often higher than savings accounts. The average national rate is 0.63%, but in some cases they're in excess of 5%. Money market accounts can be a wise choice if you hope to grow your money more quickly without tying it up in a CD for years at a time. But that's not to say they're without restrictions.
Money market accounts are also subject to Regulation D, like savings accounts, so you're limited to six online or phone transfers and withdrawals per month. Checks also count toward your six convenient withdrawals per month, but ATM withdrawals do not. The interest rate on a money market account is variable, which means it can fluctuate over time.
If a money market sounds like the right account for you, check out our list of the best money market accounts.
Show More [ + ]
Certificates of deposit (CDs)
Best for: Those who want to earn a higher interest rate on their savings and don't need to spend that money anytime soon.
Not for: Those who think they'll need to withdraw their money before the CD's maturity date.
A certificate of deposit (CD), also known as a share certificate if you're using a credit union, is a special type of savings account that offers a higher interest rate -- but there's a catch. When you put the money into a CD, you're agreeing that you won't touch it for the length of the CD term. This can be anywhere from a few months to several years. Usually, the longer the loan term, the higher the interest rate. The best CDs can offer APYs of around 5%.
When you're looking at CDs, there are a few important factors to keep an eye out for. Picking the right CD is important because you have to commit to it for a period of months or years. You're not married to it, but you're definitely at the "moving in together" stage of bank accounts.
That said, here are the three things we look for when looking at certificates of deposit:
- What's the interest rate (APY)? (Higher is better)
- What's the minimum deposit to open the account?
- What's the term?
It's also important to make sure any CD you're considering is FDIC-insured. This ensures your money is protected (up to $250,000) if the bank fails.
Our recommendations: CDs we love
If you know any of us in person, you know we like to talk about finances even when we're not working. That said, here are some of the CDs the team at the Ascent would recommend to friends and family. For the full list of our current recommendations, head to our main page: Best CD Rates.
- Western Alliance Bank, 1 Year: 5.51% APY
- Quontic CDs, 6 Months: 5.05% APY
- Discover High Yield CD, 1.5 Year: 5.00% APY
- Barclays Online CD, 1 Year: 5.15% APY
More about certificates of deposit
CDs are best for people who want to earn a higher return on their savings without taking on a lot of risk. They are ideal for those who have a lump sum of money that they don't need to use immediately, as the longer the term of the CD, the higher the interest rate and return.
You can withdraw money from your account before it reaches its maturity date (the end of the CD term), but you'll pay a high penalty. This is often a certain number of months' worth of interest, and the farther away you are from your maturity date, the greater the penalty. A few CDs, known as no-penalty CDs, do not charge you if you withdraw your money early, but these usually have lower APYs than other types of CDs.
CD laddering is a popular strategy that lets you take advantage of the higher APYs offered by longer-term CDs while still giving you access to some of your funds every year. You start by investing your money into CDs with consecutive annual maturities -- for example, a one-year, a two-year, a three-year, a four-year, and a five-year CD.
When the one-year CD matures, you roll those funds into a new five-year CD. The next year, the two-year CD will mature and you put this into a new five-year CD as well, and so on. Every year, another CD will mature and you can withdraw the money if you decide or put it into a new one to keep growing your money.
Looking for a CD? Check out our list of the best CDs available now.
Interested in more info on CDs? We have a guide for that! Head over to our CD info page: What Is a CD?
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How to open a bank account
When you've finally selected the best bank or credit union account for you, the next step is to open the account. Follow these three steps:
- Gather paperwork proving your identity, including your name, address, date of birth, and social security number.
- Fill out an application online or in-person.
- Deposit money into your new account.
And that's it! Opening a bank account might feel intimidating, but it shouldn't take longer than an hour or so. Once you're done, you'll have a shiny new account to fill with your hard-earned money.
More about applying for a bank account
If you want to dig deeper into the world of applying for a bank account, here's what you need to know.
- Gather the important information and paperwork: You'll need the following to open a bank or credit union account:
a. Full name
b. Address
c. Date of birth
d. Social Security number or Taxpayer Identification number (TIN)
e. Driver's license or passport - Fill out the application form: Most banks and credit unions should have an online application form that you can fill out. If your bank or credit union has a branch, you can also visit it if you prefer to deal with a live person. You may need to print, sign, and mail your application form to the bank if it does not give you an option to submit online.
- Fund your account: Your bank or credit union should provide you with information on how to fund your account once you've set it up. Usually, you have the following choices:
a. Deposit cash
b. Deposit a check or money order
c. Set up direct deposit with your employer
d. Transfer money from another bank
Here are some specific guides we created -- if you're interested in a specific bank account, understanding how to open an account is the next step!
- Online: How to Open a Bank Account Online
- With someone else: How to Open a Joint Bank Account
- For a child: How to Open a Bank Account for a Minor
- For a business: How to Open a Bank Account for a Business
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Next steps
Here are a few additional resources we've created to help you navigate the world of banking:
FAQs
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Banks, both large and small, are usually for-profit organizations that offer a wide range of products and services. Credit unions, on the other hand, are not-for-profit institutions that are owned by their members and offer a more personal touch. Online banks have emerged in recent years as an alternative to traditional brick-and-mortar banks and provide the convenience of banking from anywhere, anytime.
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While both types of accounts are offered by banks, they serve very different purposes. A checking account is primarily used for everyday transactions, such as paying bills, writing checks, and withdrawing cash. On the other hand, a savings account is designed to help you save money over time, and these often offer higher interest rates than checking accounts.
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Online-only banks have been growing in popularity due to their convenience and competitive interest rates. Online-only banks are required to meet the same safety regulations and standards as traditional banks, including having FDIC insurance for up to $250,000 per depositor. Additionally, online-only banks are often equipped with advanced security measures, such as two-factor authentication and biometric identification, to protect against fraudulent activities.
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No -- but that doesn't mean you're not protected. Rather than being backed by the Federal Deposit Insurance Corporation, credit unions are insured by the National Credit Union Administration (NCUA). This means they offer the same level of financial protection and security as traditional banks.
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With the recent failures of regional banks, it's natural to feel concerned about the safety of your own bank. However, there are ways to ease your worries and ensure your money is secure. First, check if your bank or credit union is insured by the FDIC or NCUA. This guarantees up to $250,000 of your deposits are protected, even if your financial institution were to fail. Additionally, research your financial institution's financial health, such as its liquidity and investment portfolio. Reliable sources such as Moody's or Fitch can provide insight into a bank's stability. It's also important to keep an eye on any news regarding your bank.
Our Banking Experts
The Ascent brings financial expertise, trusted advice, and unbiased analysis to the world of daily personal finance decisions. Our mission is to help you live more richly.
David S. Chang, ChFC?, CLU? is an award-winning entrepreneur, keynote speaker, author, and consultant. He has over two decades of experience in the wealth management space and has been featured in dozens of news, radio, and podcast programs nationwide. He currently works as Head of IoT for the West Region of a Fortune 200 company. He is a graduate of the United States Military Academy at West Point and currently a Lieutenant Colonel in the California Army National Guard. He is an East-West Graduate Degree Fellow and has an MBA from the UCLA Anderson School of Management.
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Ashley Maready
Ashley Maready is a former history museum professional who made the leap to digital content writing and editing in 2021. She has a BA in History and Philosophy from Hood College and an MA in Applied History from Shippensburg University. Ashley loves creating content for the public and learning new things so she can teach others, whether it's information about salt mining, canal mules, or personal finance.
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